Question

On January 1, Year 1, the City Taxi Company purchased a new taxi cab for $39,000. The cab has an expected salvage value of $4,000. The company estimates that the cab will be driven 200,000 miles over its life. It uses the units-of-production method to determine depreciation expense. The cab was driven 48,000 miles the first year and 51,000 the second year. What would be the depreciation expense reported on the Year 2 income statement and the book value of the taxi, respectively, at the end of Year 2

Answer 1

Answer:

depreciation expense year 2 = $8,925

book value end of year 2 = $21,675

Explanation:

depreciable value = $39,000 - $4,000 = $35,000

total miles driven = 200,000

depreciation expense per mile driven = $35,000 / 200,000 miles = $0.175 per mile driven

depreciation expense year 1 = 48,000 x $0.175 = $8,400

book value end of year 1 = $39,000 - $8,400 = $30,600

depreciation expense year 2 = 51,000 x $0.175 = $8,925

book value end of year 2 = $30,600 - $8,925 = $21,675